Ohio justices: Payday loans legal despite 2008 law

COLUMBUS – In a victory for payday lenders, the Ohio Supreme Court ruled Wednesday that a two-week loan to an Elyria man that imposed more than 235-percent interest is not prohibited under Ohio’s mortgage lending laws.

In a unanimous decision, the court sent Rodney Scott’s case against Ohio Neighborhood Finance, owner of Cashland stores, back to the trial court for further proceedings. He would have paid interest of less than $6 if he’d paid back the loan on time, but faced the higher fees after missing his payment.

Advocates for Scott sought to close a lending loophole that has allowed such payday-style loans to continue as interest-bearing mortgage loans despite a state crackdown on predatory short-term lending passed in 2008.

The high-stakes case was closely watched by both lenders and by consumer groups that lobbied for the 2008 law and successfully defended it against a repeal effort on that year’s ballot.

A lower court ruled Ohio lawmakers clearly intended the 2008 law, called the Short-Term Lender Act, or STLA, to apply to payday loans, but justices found Wednesday that the law as written doesn’t have that effect.

“Had the General Assembly intended the STLA to be the sole authority for issuing payday-style loans, it could have defined ‘short-term loan’ more broadly,” Justice Judith French wrote for the majority.

Justice Paul Pfeifer cited the fact that not a single lender has signed up under the terms of the 2008 law as proof of its ineffectiveness, chastising the Legislature where he once served for passing a bill that was all “smoke and mirrors.”

“There was a great angst in the air. Payday lending was a scourge. It had to be eliminated or at least controlled,” he wrote. “So the General Assembly enacted a bill, the Short-Term Lender Act, to regulate short-term, or payday, loans. And then a funny thing happened: nothing.”

Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, said a clear message was sent when state lawmakers passed payday lending restrictions in 2008 and 64 percent of Ohio voters then upheld key provisions of the law.

“They’re doing legal gymnastics to arrive at this notion,” he said. “We have this Wild West of lending in Ohio. People are operating doing all kinds of loans under statutes that were never intended for those kind of loans.”

Yolanda Walker, a spokeswoman for Cash America International, Inc., Cashland’s parent company, said in a statement that the company is pleased with the court’s ruling.

“The Court in its opinion confirmed the unambiguous language of the statute,” she said. “At Cash America, we are committed to operating in compliance with the state laws where we do business. The ruling by the Ohio Supreme Court confirms that we offer legal, short-term credit options to Ohioans.”

The court said its ruling provides an opportunity for state lawmakers to revisit the 2008 law — passed under a Democratic-led House and Republican-led Senate — to clarify its intent.

“It is not the role of the courts to establish legislative policy or to second-guess policy choices the General Assembly makes,” French wrote, suggesting that advocates for Scott in the case were urging a position on the court “fraught with legislative policy decisions” that are outside the court’s authority.

While acknowledging the 2008 law failed to address a number of contentious ambiguities in state law, Faith called it a sad day for consumers.

“But really it’s an even sadder day for hard-working Ohioans who continue to be exploited by getting trapped in these payday lending schemes,” he said. “Someone who’s in desperate need of $500 today isn’t going to have an extra $590 two weeks from now.”